Debt consolidation helps you to manage your debts better by condensing them into a single debt account. This is best done by a debt consolidation firm that can guide you through the entire process. You can consolidate your debts either by restructuring your existing debts or by taking on additional financial responsibility. What do these 2 options imply? In the first case, you can consolidate your multiple debts into one by enrolling for a debt consolidation program. You will be given a new repayment plan according to which you have to make payments.
When you are enrolling for a debt consolidation program, the company that is assisting you in consolidating your debts will negotiate with your creditors so that the interest rate can be reduced which automatically lowers your monthly payments too. You restructure your existing debts and make it more affordable by negotiating with the creditors. The debt consolidation company assisting you in this regard charges fees for offering their services to you. And in case they do not charge any fees or charge nominal fees, they are likely to be non-profit making debt consolidation firms.
However, if you happen to hit upon one such non-profit debt consolidation company, make sure that the credibility of the company is good. This is because several instances have been reported when non-profit debt help companies show that they are not charging any fees but in reality they pocket part of the cash you pay them to pay off creditors. You can check accreditation of these companies by referring to the Better Business Bureau.
There is another way to consolidate your multiple debts and that is by taking out a debt consolidation loan, you take out a loan that is equivalent to the sum of the individual loans taken together. It can be a secured debt consolidation loan or an unsecured debt consolidation loan.
If you are taking out a secured debt consolidation loan, you will be required to use collateral which in most cases is your house. On the other hand, if you are taking out an unsecured debt consolidation loan, you don’t have to use collateral but the rate of interest the loan will attract is very high.